Stop loss in trading as percent of Avarage True Range (ATR)

Last Updated on 24 August 2022 by

Stop loss is the most important rule the trader must keep in mind, prior to the profit.

Following rule I apply based on Avarage True Range indicator.

Day trading. Stop Loss = 10% of daily ATR

Swing trading. Stop Loss = 50% to 100% of daily ATR

  1. I define how long the trade is: few minutes until by the end of day (day trading) or more days (swing trading).
  2. I set my stop loss never changing the above rules.

Following a real example of this approach.

USD/CAD chart, 30-minutes timeframe, going short after a strong uptrend. Entry point at double resistance level I show with my custom indicator. Daily ATR is 0.8% of the current price and I want to close the trade by the end of day. Consequently my stop loss is set around to 0.1% of the current price (10% of daily 0.8% is around to 0.1% of the current price).
Unfortunally, my trade going in stop loss with the short squeeze above. I would have gone into profit if I had set a stop loss of 50% (50% of daily 0.8% is around to 0.4% of the current price ). But I have chosen a day trading approach, not swing trading. Entry point at a strong resistance level made me secure enough for a fast rebounce.

The own rules are the most important at all.

What was I wrong? Stop loss was ok, in line with my fast-speculative trade, but I would have waited more time and further confirmations. Entry point four more candles after touching my entry point, would have been the better choice.

More confirmations are better like watching lower highs and lower lows.

Giancarlo Pagliaroli

Disclaimer: The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types od advice or recommendations supplied or endorsed by me.

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